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Announcement:

Moody's: China continues to make progress on limiting risk in the financial sector

 The document has been translated in other languages

28 Jun 2018

Hong Kong, June 28, 2018 -- Moody's Investors Service says that China (A1 stable) continued to make progress on limiting risk in the financial sector with coordinated measures in the first quarter 2018, according to banking system statistics released by the People's Bank of China and the China Banking and Insurance Regulatory Commission.

"In particular, we are noticing slowing asset growth and stabilizing asset quality, as well as accelerating loan growth as banks are returning to conventional lending and away from shadow banking activities," says Nicholas Zhu, a Moody's Vice President and Senior Analyst.

"Looking ahead, we expect the regulators will maintain a cautious approach in order to alleviate any potential disruption to the real economy from the clampdown on shadow banking and interbank activities," adds Zhu.

Moody's conclusions are contained in its just-released report "Banks -- China: Quarterly snapshot of credit profiles ".

Total assets grew 6.6% year-on-year in 1Q 2018, compared to 15.7% a year ago. The weakest growth was among midsized joint-stock commercial banks with 3.0% year-on-year growth in 1Q 2018. City commercial banks reported 7.9% year-on-year growth.

Asset quality also stabilized in line with the sustained expansion in the macroeconomy. The average nonperforming loan (NPL) ratio for Chinese banks was 1.75% as of 1Q 2018, one basis point higher than in 4Q 2017, while special-mention loans declined to 3.42% of total loans from 3.49% in 4Q 2017.

Nevertheless, Moody's points out that China's ongoing deleveraging could raise default risk somewhat for weaker borrowers in the next 12-18 months.

Capitalization has softened somewhat, with the average Core Tier 1 capital ratio for all commercial banks down to 10.72% at the end of 1Q 2018 from 10.75% at the end of 4Q 2017. Moody's expects pressure on the banks' equity capital positions will ease as asset growth continues to slow.

However ,risk-weighted assets (RWAs) grew faster than assets as banks shifted their asset mix to loans that carry higher risk weights and away from lower risk-weighted investment in shadow banking products.

Profitability is stabilizing, with return on assets 13 basis points up from Q4 2017, but 2 basis points lower than a year ago. At the same time, net interest margins were 2 basis points down from Q4 2017, but 5 basis points up from a year ago.

Finally, liquidity remains balanced among the banks. The central bank cut the required reserve ratio for most banks by one percentage point from 25 April 2018 to optimize the affected banks' liquidity and help finance small businesses, and announced a further 50 basis point cut effective on 5 July 2018 to support debt-for-equity swaps and small businesses.

Subscribers can read the full report at

https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1127253

The report may also be found through Moody's topic page "China's trade-off: Deleveraging and stability", available at http://www.moodys.com/chinarebalancing. This page provides a centralized source for Moody's research related to key credit issues in China as the country's macroeconomic story continues to unfold.

Recent Moody's publications relating to China's trade-off include:

• ABS -- China: New supervisory structure for leasing companies is credit positive

• Renewable Energy -- China: Policies support renewable sector's growth, but challenges ahead

• Banks -- China: Smaller banks face continued funding weakness as use of structured deposits grows

• Regional & Local Governments -- China: 2018 Debt and Finances Update

• Life Insurance -- China: Improving product mix and stabilizing assets risks drive change to stable outlook

• Government of China: Change in China's economic structure is gathering pace, a credit positive

• Banks: China finalizes liquidity risk-management rules for banks, a credit positive

• Regulated Electric & Gas Utilities: China's new pricing mechanism for residential users is credit positive for the gas sector

• Integrated Oil & Gas: China's natural gas pricing mechanism reform is credit positive for suppliers

• Investment Funds -- China: Long-term trends are positive, even if regulation slows short-term growth

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Ray Heung
Senior Vice President
Financial Institutions Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Minyan Liu
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077

No Related Data.
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